What Qualifies as a Manufactured Product in Puerto Rico?

Manufacturing plays a key role in Puerto Rico’s economy, especially for businesses looking to benefit from tax incentives under Act 60 and other local laws. But what exactly qualifies as a manufactured product under Puerto Rico’s legal and tax framework?

Defining a Manufactured Product

In Puerto Rico, a manufactured product is generally defined as a tangible good that has undergone a substantial transformation through an industrial or manufacturing process. This means that the final product must be significantly different from its original raw materials in terms of function, character, or value.

To better understand this definition, let’s look at the specific criteria established in Article 1020.06(a)(13)-1 of the Regulations under Act 60. According to this regulation, a Manufactured Product in Puerto Rico is one in which at least 30% of its value has been added in Puerto Rico. This percentage is determined by subtracting the cost of imported materials and any expenses incurred outside of Puerto Rico from the product’s final sale price.

The value added in Puerto Rico includes:

✅ Direct and indirect costs incurred on the island, such as labor and manufacturing overhead expenses.

✅ Locally manufactured raw materials used in the production process.

However, it is important to note that certain items do not qualify as raw materials under this definition, including:

❌ Construction materials

❌ Electrical products

❌ Lubricants

❌ Prefabricated buildings

❌ Purchases of energy or water

Additionally, products manufactured by a related entity to the exempt business do not qualify as Manufactured Products in Puerto Rico under the law.

Why Does This Matter?

Qualifying as a manufacturing operation in Puerto Rico can unlock powerful tax incentives, including:

🚀 4% fixed income tax rate under Act 60

🚀 exemption on municipal and property taxes

🚀 Eligible for tax credits and other financial benefits

At CLB Tax, we help businesses understand Puerto Rico’s tax laws and navigate the incentive process to ensure compliance and maximize benefits. Contact us for expert guidance on tax planning and business structuring.

(Disclaimer: This blog is for informational purposes only and does not replace professional tax or legal advice.)